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By: Edward Storck
Recently, the Connecticut Supreme Court examined the rights of a restaurant owner tenant who had withheld payment of rent citing the executive orders dealing with the Covid-19 pandemic as the cause for their inability to pay rent. In AGW Sono Partners, LLC v. Downtown Soho, LLC, SC 20625 (May 10, 2022), the landlord sued the defendant claiming breach of the lease agreement, unjust enrichment for occupying the premises without paying for it, and breach of the guarantee following the Defendant’s failure to pay rent during the pandemic. The Defendant asserted several special defenses including asserting the doctrines of impossibility of performance and frustration of purpose.
In the underlying action, the Defendant argued that payment of the rent was impossible and/or impracticable in light of the pandemic and the restrictions imposed by the executive orders issued by Governor Ned Lamont. On March 10, 2020, when restaurants were ordered closed pursuant to executive order, the Defendant closed the restaurant on March 11, 2020, and did not reopen until May 27, 2020. During this time, restaurants were allowed to offer takeout and delivery and then eventually were allowed to offer outdoor dining. The Defendant claimed that takeout was not profitable for the restaurant when it tried to do so.
In upholding the trial court’s decision, the Supreme Court found that the doctrine of impossibility or impracticability did not excuse the Defendant from its obligations under the lease agreement. The court agreed with the trial court when it found that even under the most restrictive of executive orders, use of the premises was not rendered factually impossible since restaurants were allowed to provide takeout service and the lease agreement did not prohibit such service. While the closing of indoor dining for a period, as well as the loss of bar services for that same time, may have rendered the business highly burdensome, those things did not make business impossible or commercially impracticable. Moreover, the lease terms suggested that the Covid-19 pandemic was not entirely unforeseeable.
As to frustration of purpose, the court upheld the findings of the trial court as it could not be determined that the Covid-19 pandemic restrictions created a situation where the objectives of the contract were utterly defeated. The lease agreement did not limit the type of dining that could occur at the premises. The restaurant still could offer takeout and outdoor dining. In contrast to the Massachusetts case cited by the Defendant in support of its position, the court found that this was not a situation in which the lease agreement limited the operation to a single purpose such as a lease agreement that specifically limited the purpose to “a café with a sit-down restaurant menu and for no other purpose.”
While the Supreme Court upheld the underlying findings of the trial court, it reversed and remanded the case as to the damages award only and ordered a new hearing in damages. The court found that the trial court improperly shifted the burden to the landlord when determining whether the landlord failed to mitigate its damages. The court held that burden of proof should be on the breaching party, in this case, the Defendant.
In closing its decision, the court opined that this case demonstrated the difficulty of using existing legal doctrines to shield parties from economic damages caused by the pandemic. The court, in dicta, noted that we are left to rely on the other branches of government to implement equitable economic relief to enable all businesses and citizens to thrive after the pandemic.